Tax Treaties and the Taxation of Non-Residents' Capital Gains

Article 13 of the OECD Model tax treaty allows a source country to retain taxing rights on capital gains realized by non-residents on the sale of real (immovable) property in the source country. Recently, it has been modified to incorporate a further rule that has long been a feature of the UN Model treaty, namely extension of the definition of real property to include shares in land rich companies whose value is attributable to land they hold. Existing bilateral treaties differ widely in the actual coverage of Article 13 with significant variations in the definitions of land rich entities subject to the Article and of land, with some treaties deeming many types of rights associated with land to be land for the purpose of the Article. This paper surveys the range of rules used in different treaties and explores the reasons countries have adopted different approaches to the allocation of taxing rights over this type of gain